Lifestyle Tax Relief: The Good, The Bad & The Ugly

When middle-class Malaysians have more money in their pockets to save, invest, and grow the economy, the country benefits. Other than the government’s continuous effort in boosting the lower-income group, also known as the Bottom 40 (B40), the last few federal budgets had also seen cuts in income tax rates.

However, in his Budget 2017 speech, Prime Minister Datuk Seri Najib Razak did not announce any change to personal income tax rates. Instead, he announced a few tax reliefs, including the new lifestyle tax relief. The new lifestyle tax is not exactly new. It combines a few tax reliefs into one, allowing taxpayers to claim yearly. It is a combination of the tax relief for reading materials (up to RM1,000 a year), computer (up to RM3,000 every three years), and sports equipment (up to RM300 a year).

Effective for year of assessment 2017 (tax filed in 2018), the lifestyle tax relief at a limit of RM2,500 yearly, also includes new categories such as the purchase of printed newspapers, smartphones and tablets, internet subscriptions as well as gymnasium membership fees.

The good thing about the new relief is, it offers more flexibility because it allows a slightly larger group of taxpayers to benefit from it.

“For year of assessment 2016 and before, only individuals with a monthly income of RM3,800 and above would have enough chargeable income to utilise the RM1,300 or RM4,300 tax relief. Starting from year of assessment 2017, the lifestyle tax relief includes individual with a monthly income of RM3,600 and above,” said Choong Hui Yan, a tax consultant from SIMways Formulation.

But is the new tax relief really great news for taxpayers?

So, what is the difference between the lifestyle tax relief and previous reliefs?

* Assumming that the individual taxpayer maximise the lifestyle tax relief fully with the added categories.

Based on the example above, you will pay a lower tax on the year that you claim for the computer tax relief in YA 2016 and prior, but you will see a higher tax in the two other years that you are not claiming for computer.

On the other hand, because of the wider categories in the new lifestyle tax relief, it is much easier to maximise the amount every year. In this case, you will see a savings of RM30 over three years.

“It would have been nice to see a higher limit of say RM5,000,” he added.

How do taxpayers feel about it?

The new lifestyle tax relief does offer more flexibility because it includes more items. It also reintroduces relief for internet subscription which was discontinued in 2013.

This means, for those who don’t take full advantage of reliefs such as reading materials, they can now make use of the reliefs in other ways.

The drawback is, for those who actually spend their money on all the categories, the limit of RM2,500 really doesn’t make a big impact on savings. Many taxpayers feel that the amount is too low.

Shamalah Watumalai, 38, who heads the device subsidy and services division at a reputable telco in Malaysia, said that although she welcomes the inclusion of internet subscription, smartphone and tablet in the lifestyle relief, the amount given does not even cover her yearly broadband subscription.

“I spend RM250 a month on broadband, and I typically max out the RM1,000 relief on reading materials,” said Shamalah, adding that for the relief to be meaningful, the amount should be higher.

SHAMALAH WATUMALAI, 38, head of device subsidy & services

Annual spending

Internet subscription (RM250/month)

RM3,000

Reading materials

RM1,000 to RM1,500

Computer

RM2,000 (2014)

Smartphone

RM5,000 (2016)

Total tax relief for these categories

YA 2016

YA 2017

RM1,000

RM2,500

Another taxpayer, Carmen Lee, a senior real estate negotiator, shares the same sentiment.

“For someone who spends on almost all the categories, the lifestyle tax relief is bad news for me,” said Lee.

CARMEN LEE, 24, senior real estate negotiator

Annual spending

Internet subscription (RM150/month)

RM1,800

Reading materials

RM600

Computer

RM2,400 (2016)

Tablet

RM2,500 (2016)

Gym membership (RM160/month)

RM1,920

In 2016 alone, Lee has spent RM9,220 in these categories. Even without including the new categories, Lee will be able to get relief of RM3,000 (RM2,400 + RM600) based on the current separated tax reliefs. However, with the new lifestyle relief, she would have gotten only RM2,500 in tax relief, despite the added categories.

Total tax relief for these categories

YA 2016

YA 2017

RM3,000

RM2,500

The combined tax relief sounds like a good idea, but it doesn’t really encourage one to adopt a digital lifestyle, while still live an active life.

For example, Hernando Taniko, 25, digital marketing/SEO executive, spends about the same amount on both broadband subscription and gym membership.

“With the RM2,500 limit, I can only claim relief on one of these two major expenses. I’m glad I’ve bought my computer before the new relief is implemented,” said Taniko.

HERNANDO TANIKO, 25, digital marketing/SEO executive

Annual spending

Internet subscription (RM189.75 /month)

RM2,277

Computer

RM3,000 (2015)

Smartphone

RM1,200 (2016)

Gym membership (RM171/month)

RM2,052

However, Taniko still stands to gain from the new lifestyle relief, as he usually does not utilise the reading materials and sports equipment tax reliefs. Now he can use the relief for other spending, albeit not all his spending in the categories.

Total tax relief for these categories

YA 2016

YA 2017

RM0

RM2,500

Like the rest of them, Wong Yin Keet, 31, thinks the lifestyle tax relief is disguised as good news, but taxpayers are actually losing out.

This is especially true for those who utilise expensive categories, such as broadband subscription, gym membership, computer, smartphone or tablet.

“Items like broadband subscription and gym membership are not likely to reduce in price. If you have these two constant expenses, you will probably never get to claim for purchase of computer, smartphone or tablet,” said Wong.

WONG YIN KEET, 31, mobile developer

Annual spending

Internet subscription (RM199/month)

RM2,388

Computer

RM3,500 (2013)

Tablet

RM700 (2016)

Sports equipment

RM200

However, for Wong, who did not utilise the relief for reading materials and computer, he can make use of the RM2,500 relief for other categories when he files for income tax in 2018.

Total tax relief for these categories

YA 2016

YA 2017

RM200

RM2,500

How can the lifestyle tax relief be better?

Though the lifestyle tax relief on the surface looks great for taxpayers with additional RM600 tax relief over three years, after delving deeper into it, we found that due to the low limit of RM2,500, the actual impact on chargeable income is pretty much negligible.

There are more categories to claim for, but at the end of the day, one can’t claim for all of them. The relief limit should also take into consideration the current cost of these items.

“Those who purchase a computer, smartphone or a tablet in any year of assessment would lose their annual expenses incurred on books, newspaper, sports equipment, gym or internet subscription,” Choong added.

If you are planning to purchase a computer, it will be best to make the purchase before the end of the year to still make use of the separated relief of up to RM3,000.

For the relief to make a meaningful impact on the taxpayers’ bottom line, the relief should separate the categories for computers, laptops, smartphones and tablet from the relief on books, newspaper, sports equipment, gym and internet.

For now, based on the RM2,500 limit, it seems taxpayers will be forced to choose one or the other.